# U.S. Net Exports Component of the GDP since 1947

#### Summary

Students create the GDP stacking graph on FRED using expenditure approach (C+I+G+NX). Then students analyze the dynamics of net export component and propose a solution to the U.S. trade deficit.

## Context for Use

● Is the activity appropriate for principles courses, intermediate courses, or selective elective courses?
Principles course, Introductory Macroeconomics.
- What prior student knowledge is required?
Coverage of GDP expenditure approach.
● Are there class size limitations?
No
● How much time is needed for the activity? Does it extend across more than one class period?
50 minutes class for discussion. However, the creation of the GDP stacking graph should be given as a homework and the graph should be brought to class. Handout on how to create the GDP stacking graph is attached here.
● Is this activity connected to another TBL activity? If so, please provide a link to that activity. For example, is this activity part of a group of activities within a single TBL module?
This activity could be self-standing.

## Overview

This activity analyzes the net export component of the United States' gross domestic product (GDP) and its evolution from 1947 till present. Students construct a stacking graph of the U.S. GDP, observe the dynamics of the ratio of net exports to overall GDP, and propose solutions to combat U.S. trade deficit.

## Expected Student Learning Outcomes

After the completion of this activity students will be able to:
1. Use FRED graphs to perform visual data comparisons.
2. Assess how different categories of spending change their relative weight over time.
3. Analyze net export position of the U.S. and make policy recommendations to combat U.S. trade deficit.

## Information Given to Students

As a homework, you constructed the stacking graph of the U.S. GDP, which shows the dynamics of various GDP components from 1947 till present. For this activity, observe the changes of the net export (NX) component and respond to the following scenario.

Your team is the economic research staff to the United States Trade Representative (USTR). Some members of Congress and the President of the United States have pressured the USTR to develop aggressive protectionist policy in response to persistent trade deficits. Use the information on GDP components and your understanding of economics to recommend and defend one of the following actions by the USTR.

Policy Options:
A. The USTR should recommend a substantial increase in U.S. tariffs on imports because the increased price of imports will decrease the demand for them and therefore tilt the net export component toward the positive territory.
B. The USTR should continue to advocate low tariffs because each country's specialization provides for the most efficient production of a good or service and the imposition of a tariff disturbs the efficient allocation of resources.
C. The USTR should recommend a substantial increase in U.S. tariffs on imports because the higher prices of imports give an advantage to domestic products within the same market, therefore, helping domestic industries to grow.
D. The USTR should continue to advocate low tariffs because lower tariffs and fewer restrictions on the movement of goods and services across international borders drives economic development throughout the world.

Student Handout for Homework (Acrobat (PDF) 142kB Nov30 19)

## Teaching Notes and Tips

● What prefatory remarks should set up the application exercise?

Instructor should explain the expenditure approach to GDP.

● Does facilitating the team work require any special action?

Teams must have the GDP stacking graph done at home. Stuents must bring the graphs to class to be able to look at them to drive their discussion. If computers are allowed, it will be helpful to students to have the graph opened. They will be able to interact with the graph by changing the time-frame to facilitate their understanding of the dynamics of each component.

● What kinds of follow-up questions are recommended for facilitating the debriefing conversation among team reporters? In particular, how might the instructor get teams to evaluate which answer is the best, provide the analytical support for the team answers, identify what information would enable an economist to decide between alternative answers?

Facilitation questions:

1. What would be the consequence for economic growth of the policy you are recommending?
2. Which special interest groups in the U.S. would support your recommendation?
3. Which special interest groups would oppose your recommendation?

● What points should be emphasized in the instructor's summary remarks to conclude the exercise?

The dynamics of the GDP components are very interesting. Through this exercise, you were able to see how each component contributed to the GDP growth in various times.

Additionally, through this exercise you were able to understand the dynamics of net export component and discover how the imposition of tariffs affect the economic growth.

## Assessment

After the completion of this activity students should be able to:
1. Use FRED graphs to perform visual data comparisons.
2. Assess how different categories of spending affect GDP differently.
3. Assess how different categories of spending change their relative weight over time.
4. Analyze net export position of the U.S. and make policy recommendations to combat the U.S. trade deficit.

## References and Resources

FRED: https://fred.stlouisfed.org/graph/?g=ot36

Analyzing the Elements of Real GDP in FRED® Using Stacking" available on the EconLowDown: https://www.stlouisfed.org/~/media/Education/Lessons/pdf/FRED-GDP-Stacking.pdf

Asarta, Carlos and Roger Butters. 2018. Principles of Economics, 2nd Edition, McGraw-Hill. Instructor resources for this text contain ideas of teaching economics with FRED. I used these ideas to create this AE.